Rapid Shift

Peak coal is coming sooner than expected, Goldman Sachs told clients

“Peak coal is coming sooner than expected,” Goldman told clients in a September research note. Goldman projects global demand for coal used in electricity generation will drop from a peak of 6.15 billion metric tons in 2013 to 5.98 billion in 2019 (the end of its forecast range).

“The industry does not require new investment given the ability of existing assets to satisfy flat demand,” explained Goldman Sachs commodity analysts Christian Lelong and Amber Cai. “So prices will remain under pressure as the deflationary cycle continues.”

In short, there’s no foreseeable recovery for coal futures, which have already plunged 77 percent since 2008 and 63 percent since 2011. No wonder, then, that Arch Coal — the second largest supplier of U.S. coal — filed for bankruptcy on Monday, joining troubled competitors like Patriot Coal, Walter Energy, and Alpha Natural Resources.

Goldman Sachs explains the private sector has all but stopped investing in new coal mines, stating: “In any case, capital markets are largely closed [for funding coal mines] with the exception of private equity investors on the hunt for distressed assets.”

And China itself won’t be approving new mines for at least the next three years, as we reported last week. “Chinese coal consumption enters downward spiral,” was the key conclusion of a major analysis last month of Beijing’s energy and climate policies.

China’s coal consumption dropped nearly 3 percent in 2014 and at least 5 percent in 2015. One analyst in Beijing projected recently, “coal consumption will drop by between 2.5 percent and 3 percent in 2016.”

It’s not just China reducing coal imports. India’s Minister of Energy Piyush Goyal said last May, “We are confident that in the next year or two, we will be able to stop imports of thermal coal.” Indeed, a 2014 solar auction revealed “solar PV is cheaper for Indian users than the electricity price needed to pay for imports of coal from Australia” for new thermal coal-fired power plants.

And it’s not just China cutting domestic coal use — the rest of the world also slashed coal last year. Remarkably, all of this has happened before most major countries have even adopted a serious price for carbon that comes anywhere near approximating the harm to human health and well-being caused by burning fossil fuels, like coal.

Because coal is the most carbon intensive fossil fuel and generally burned the most inefficiently, it’s crucial that it stays in the ground. Indeed, a 2015 article in the journal Nature, “The geographical distribution of fossil fuels unused when limiting global warming to 2 °C,” concluded that, “over 80 percent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2 °C.”

That, of course, is precisely why 350.org’s founder Bill McKibben and others have been urging people and institutions to divest their portfolios from investment in fossil fuels like coal for more than two years.